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Public-Private Partnerships in Indonesia

The concept of Public-Private Partnerships (“PPP”) embodies one or more private parties comprising a consortium, commonly consisting of construction companies, operating companies and financiers that together undertake to finance and develop a project or asset for use by the government on behalf of the public and to be paid for over time. The types of projects and assets are normally infrastructure related and are of interest to investors because of the government’s support and guarantee of repayment.

The Government of Indonesian (the “GOI”) has put forward pro-PPP policies since early this millennium, although only a handful of projects have been completed successfully. In many cases, the work has been awarded to state-linked enterprises and may not be considered PPPs. That said, the GOI has evidenced its intent to improve the development of PPP projects in Indonesia by making them more appealing to investors.

Recent Regulations

The year 2015 saw the issuance of Presidential Regulation No. 38 of 2015 regarding Cooperation Between the Government and Enterprises in Infrastructure Procurement (“PR 38/2015″). PR 38/2015 revoked previous regulations on PPP, namely Presidential Regulation No. 67 of 2005, as last amended by Presidential Regulation No. 66 of 2013 (as amended, “PR 66/2013”). PR 38/2015 was further implemented by Minister of National Development Planning/Head of National Development Planning Agency Regulation No. 4 of 2015 regarding the Implementation Procedure of Cooperation Between the Government and Enterprises in Infrastructure Procurement (“Bappenas Reg 4/2015”). Bappenas Reg 4/2015 sets out the specific details of the administrative procedure and how the cooperation between the GOI and the private sector works.

PR 38/2015 added 11 new types of infrastructure projects to the list set out in PR 66/2013 that can be developed through the PPP scheme, resulting in a total of 18 types of infrastructure projects. The additions under PR 38/2015 include energy conservation, city facilities, educational facilities, sports and arts facilities, public infrastructure, tourism facilities, correctional facilities and public housing infrastructure. The original list in PR 66/2013 was comprised of, among others, transportation, roads, water, drinking water, wastewater, telecommunications, electrical and oil and gas.

One of the changes introduced by PR 38/2015 is that it is now possible to bundle a PPP proposal for two or more types of infrastructure projects. In such a scheme, the business entity will cooperate with a new GOI ad hoc body that will be formed for the particular project, known as a Government Contracting Agency (the “GCA”). PR 38/2015 requires the GOI institutions involved or otherwise relevant to the project to enter into a memorandum of understanding to, among other matters, decide on which GOI institution will be the GCA coordinator of the bundled project. The purpose of this body is to facilitate development and this provision is meant to avoid any confusion as to which GOI entity will be in charge of the PPP project on behalf of the GOI.

To encourage investors to develop infrastructure projects using the PPP approach, PR 38/2015 allows GOI support in the form of what is called Viability Support, which is a financial contribution granted by the GOI or tax incentives. A GOI guarantee is also available in the form of an Infrastructure Guarantee, which is to be further regulated by a separate regulation that has not been enacted as of this date. PR 38/2015 also introduces the possibility of the GCA to co-fund part of the infrastructure development.

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